by Owen Tang
Department of Logistics, Hong Kong Polytechnic University

The main response of the international shipping community to the tragic events of 9-11 was the development of the ISPS Code [International Ship and Port Facility Security Code], a regulatory framework designed to detect and eliminate security threats on ships and port facilities used in international trade.

The ISPS Code (www.imo.org/home.asp/)came into force on 1 July 2004, and is expected to change the way international logistics is conducted because leading players in international trade, such as the US and EU members, have to consent to the mandatory obligations as set out in the Code.

The ISPS Code consists of two parts. Part A contains the mandatory obligations of relevant parties, i.e. ship owning companies, contracting states and port facility administrations. Part B contains guidance notes explaining how Part A should be implemented and operated. The US incorporated the ISPS Code into the national law, and made both parts of the Code mandatory. The European Parliament passed EC Regulation No. 725/2004 which called for the adoption of the whole of Part A and the mandatory adoption of certain provisions of Part B by July 2004. As one of the major international marine insurance centers, the UK implemented the ISPS Code into English law by the Ship and Port Facility (Security) Regulations 2004 (SI 2004/1495).

Our main objective here is to consider the potential implications of the ISPS Code on two legal aspects of marine insurance, namely:
1) the ship owner's right of refusing an order to have his non-ISPS compliant ship proceed to an ISPS compliant port; and
2) the warranty of legality.

Non-ISPS compliant ship to compliant port

One special feature of the ISPS Code is that it was designed to apply not only to vessels but also to shore side operations and port facilities (Section 3.1.2 of Part A). Although the ISPS Code applies only to ships over 500 gross tons, it places significant restriction on the charter party's trading freedom, especially on international trading in bulk cargoes. Hence, for ship owners, charterers, and cargo owners, particular thought must be given on how the vessel and cargo are to be traded. This section will consider the scenario where a non-ISPS compliant vessel is ordered to an ISPS compliant port.

How do we find out whether a ship or port is compliant with the ISPS Code? A compliant vessel should have an International Ship Security Certificate (ISSC). One can find out whether a port has an approved port facility security plan (PFSP) through the "ISPS Code Database".

Under common law, if a vessel is ordered to a port that does not allow loading or discharging without a local Government permit and which could result in the vessel being confiscated if it entered the port, that port has been held to be an unsafe port [Ogden v. Graham (1861) 1 B & S 773]. The ship owner is entitled to refuse charterer's order in going to an unsafe port.

Under the ISPS Code, if the charterer has nominated a single port only in the charterparty, then the carrier may be liable for misrepresenting that the vessel had the necessary ISPS compliance to allow entry.

However, the legal implication would be different if the charterer had nominated one port out of a range of ports. Such a nomination could be invalid because the charterer could exercise his right of making an alternative (valid) nomination. The legal ground to order an alternative valid nomination could be found in Olivebank A/S v. Dansk Svovlsyre Fabrik [(1919) 2 KB 162], here Bankes LJ made the following observation on pages 166 to 167: "the nomination of 0Aalborg as the port of discharge, when it was perfectly well known that the ship could not proceed there because of the restriction on the carriage of nitrates from the UK to Denmark, was in truth and in fact no exercise of the option at all. It was merely a nugatory nomination and which could not possibly be acted upon. I have come to the conclusion that, under the circumstances existing at the time when Springbank arrived at Falmouth, and was entitled to orders, it was the duty of the defendants to give her orders, within the limits of the ports mentioned in the charterparty, to go some port to which she could proceed within a reasonable time."

A complicated situation occurs if the vessel is not being refused to entry but merely delayed, then one could hardly argue that the port is an unsafe port. When a non-ISPS compliant vessel is instructed to enter a port, the ship may be delayed pending an investigation. In practice, however, it is unlikely that such an investigation would amount to a frustrating delay. Therefore, the ship owner of the non-ISPS compliant vessel would have difficulty in arguing that such instruction is an order to proceed to an unsafe port. In The Sussex Oak [(1950) 2 KB 383] Devline J said in page 392 that "the danger must be operative for a period which, having regard to the nature of the adventure and of the contract, would involve inordinate delay."

The classic definition of an unsafe port was given by Sellers LJ in The Eastern City [(1958) 2 Lloyd's Rep 127, 131]: "A port will not be safe unless, in relevant time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship."

Authorities in common law have recognized that, if an order to proceed to a port would result in undue delay because it could be breaching local laws, then it is an unsafe port [The Sussex Oak (1950) 2 KB 383].

Observing cases from both the UK and the US, however, there seems to be a lack of any authority which would consider a port unsafe if the port subjects the vessel to "black listing." Without sufficient danger to the safety of the ship or crew, it would be difficult to justify an argument that the master had a duty to refuse such an order. By following such line of reasoning, the ship owner would probably not be entitled to refuse an order of proceeding to a non-ISPA compliant port.

Warranty of legality & ISPS Code

There is an implied warranty of legality in section 41 of Hong Kong's Marine Insurance Ordinance (Cap 329). It provides that the adventure insured shall be a lawful one. To the extent that the assured can control the matter, the adventure shall be carried out in a lawful manner. Cases showed that section 41 applies both to voyage and time policies, and it is a continuous undertaking so far as the assured could control the matter.

The legal issue here is whether a ship owner sending his ship to a non-ISPS compliant port would constitute an unlawful adventure.

To identify whether it is illegal for UK underwriters (with branch offices in Hong Kong) to insure a ship proceeding to a non-ISPS compliant port, the following factors need to be considered:
a) Is the adventure unlawful under the law of the flag state and local law?
b) Whether the underwriters know that the vessel is trading in waters, in which, by local law, is unlawful?
c) Whether the adventure is lawful under Hong Kong and English law?

In Hong Kong, the Marine Department has been appointed as the Designated Authority of Hong Kong to implement the obligations under the ISPS Code. In Britain, the ISPS Code has been implemented into English law by the Ship and Port Facility (Security) Regulations 2004 (SI 2004/1495).

The main objective of the ISPS Code is to develop a consistent and standard framework for evaluating security threats affecting ships and port facilities. In the subsequent paragraphs, we first analyze the differences in marine insurance of threats from ‘pirates', ‘thieves', ‘assailing thieves', and ‘terrorists'. Then, we will look at the legislative intent of the ISPS Code to see whether violation of the code would constitute a maritime adventure as illegal.

The public may loosely refer to maritime terrorists, those who impose security threats upon ships and sea commerce, as "pirates". However, in maritime law the word "piracy" is a term of art. A pirate is one who plunders for his own ends and not for a higher cause. [Republic of Bol. v. Indem. Mut.,(1909)1 K.B. 785]. Those who seize a ship and hold hostages for political ends may be terrorists and criminals, but they are not pirates within the meaning of marine insurance policies. [Alex L. Parks, The Law and Practice of Marine Insurance and Average, page 338 (1987)]. By definition, therefore, a marine insurance policy term covering piracy will not cover politically motivated acts such as terrorism.

US marine insurance policy generally includes loss from "assailing thieves" [American Institute Hull Clauses, Perils (1977)]. Under historical British marine insurance principles, coverage of loss from "thieves" only covered thefts accompanied by violence or thefts from outside the vessel, not secret thefts or thefts from the ship's crew or passengers. Because some US courts upheld that the term could cover secret thefts without violence, US policies began using the term "assailing thieves" to clarify that this cover only extended to losses resulting from thefts accomplished by violence, either by forceful entry or forceful taking [Felicione & Sons Fish Co. v. Citizens Cas. Co. of N.Y., (1970) 430 F.2d 136]. Like pirates, assailing thieves are out for personal gain, not political principle, and thus the term would not fit a politically motivated terrorist. Currently, the marine insurance protection that covers the loss or damage caused by any terrorist or any person acting maliciously or from a political motive is the Institute War and Strikes Clauses (Hulls-Time).

Shipping legislation is normally intended to improve safety at sea by imposing penalties, its violation does not normally make the performance of the adventure illegal. For example, in St John Shipping Corp v Joseph Rank Ltd [(1957) 1 QB 267], a ship owner committed a statutory offence by overloading his ship while performing a carriage contract. Devline J held that the ship owner was entitled to freight because the aim of the statute was to prevent overloading and not to prohibit contracts. The means to achieve the legislative intent is through monetary penalty. The legislature has no intent to enforce the statute by subjecting the ship owner to additional loss (freight). Therefore, courts held that the carriage contract should not be invalidated even though the ship owner did not comply with a shipping safety statute.

Breach of the ISPS Code, so far as the port authorities concern, should fall under the category mentioned by Devline J. As the underlying purpose of the ISPS Code is to improve security at sea, particularly against possible terrorist attacks, it is therefore, should not have any bearing on the legality of voyages.

Conclusion

This article makes two submissions. First, a voyage to a non-ISPS compliant port might certain be an infringement of shipping legislation, but not illegal from the marine insurance perspective. Second, the use of a non-ISPS compliant vessel during the voyage would not have an negative impact on warranty of legality, at least under cases decided by the English courts.

About the author: The author of this article is Mr. Owen Tang, Juris Doctor (US), Solicitor (Australia), full time tutor in law [Department of Logistics], Programme Manager of MSc in Global Supply Chain Management [Graduate School of Business], Hong Kong Polytechnic University. Owen Tang Department of Logistics Hong Kong Polytechnic University Hung Hom, Kowloon, Hong Kong Email: Owen.Tang@inet.polyu.edu.hk Tel: 2766 4782